Change of Control: Meaning in a Merchant Cash Advance
A change of control is a shift in who owns or runs a business, such as a sale, a merger or a new majority owner. Most MCA agreements require the funder's consent before a change of control, or treat one without consent as a default.
What does change of control mean?
The funder underwrote your business with you in charge. If someone else takes over, it's a different risk. A change of control clause lets the funder react: approve the change, require payoff or, if it's done without notice, treat it as a breach.
Why does change of control matter to your business?
If you're selling, bringing in a partner who'll hold a majority or merging with another company, the advance becomes part of that deal. Plan for a payoff at closing or get the funder's written consent. Surprising a funder with a new owner is a quick path to a default notice.
What counts as a change of control?
Contracts define control differently. Some focus on majority ownership, others on management. Read the definition before any ownership change.
When do you have to tell the funder?
Raise the change with the funder early. A payoff letter or a consent takes time.
Does bringing in investors count?
Selling a minority stake to an investor usually isn't a change of control, but a large investment that gives someone a majority or management rights often is. If you're raising money, check the definition with your attorney first. A quick consent from the funder before closing is much easier than explaining afterward.
Do family transfers count?
Passing the business to a family member is still a change of control under most contracts.
Where will you see it?
In the covenants and default sections of the merchant agreement.
Which terms are related to change of control?
- Assignment clause
- Covenant
- Payoff letter
- What happens to an MCA if the business owner dies?
- Can I move my business to another location or state during an MCA?
The full list is in the glossary. Owners ask about this in What's the difference between an MCA approval and an offer?.
A term on your offer you don't recognize?
Send us the line and we'll tell you what it means. Call 877-FUND-654 with any question. We call you back, usually the same business day, and we always talk with you before we shop your file.